GSA takes on lead role with office leases

The General Services Administration has stripped federal agencies of the authority to negotiate and sign leases for large office spaces after auditors discovered serious problems with more than a dozen government leasing arrangements.

The rule change, first announced in October and implemented Monday with a notice in the Federal Register, prevents agencies from acting as their own leasing agents when signing contracts for office spaces larger than 20,000 square feet, giving that authority to GSA's Public Buildings Service. Agencies still will be allowed to sign leases for smaller offices but with significantly more oversight from GSA.

"We want to ensure that the leasing delegation is advanced in the most efficient and effective way possible," said David Winstead, PBS commissioner.

In 1996, GSA delegated its leasing authority to agencies through the "Can't Beat the GSA Leasing" program, often referred to as the Provider of Choice program. The program allowed agencies to decide for themselves if they wanted to use PBS as its leasing agent or to perform rental negotiations on their own.

For the most part, agencies have deferred to the experts. In the program's first full year, only six leases were signed by agencies, compared to 668 by PBS. While those figures have increased marginally over the past decade, the bulk of all leases, particularly for larger properties, are still negotiated by PBS and its assigned brokers.

In fiscal 2007, of the roughly 8,500 leases signed by the federal government, 156 -- or 1.8 percent -- were signed by agencies other than GSA.

The rents negotiated by PBS and its assigned brokers are 11 percent below the national average, in part because GSA is able to leverage the government's buying power, Winstead said.

The new rule change likely will have minimal impact on these figures. More than 90 percent of the 156 delegated leases signed last year were for properties less than 20,000 square feet. "This won't be a major hit for the agencies," Winstead said.

While relatively few agencies will acquiesce their leasing authority, those that continue to use the delegated authority will face a higher administrative burden and significantly more supervision by PBS.

These agencies now will have to receive preapproval from PBS before signing a lease. They also will have to submit cost estimates, an acquisition plan, the name of the warranted realty officer conducting the procurement and a detailed narrative explaining "why the granting of this request is in the best interests of the government."

"This modification is aimed at improving consistency, monitoring and other variables that influence the workspace we provide to our client agencies and the cost to the public," GSA Administrator Lurita Alexis Doan said last month when the changes were first announced.

The rule change was implemented after a pair of government auditors found serious missteps with the lease delegation policy.

In August, a report by GSA's Office of Inspector General found that the majority of agencies negotiating their own leases had paid excessive rental fees, violated lease authority by circumventing congressional approval for the approval of larger properties or provided inadequate documentation to PBS.

"In our opinion, the leasing problems occurred primarily as a result of the customer agencies' lack of expertise in performing lease procurements and because the agencies failed to report lease details to GSA officials and obtain assistance from GSA," the report found.

The IG said the reasons agencies had requested the delegated lease authority was to avoid paying GSA's administrative fee -- 7 percent of the lease amount -- for the use of its services and to expedite the lease process. The broker's fees are paid by the landlord.

Meanwhile, a September Government Accountability Office report (GAO-07-1000) found that GSA failed to collect complete or consistent data for its leasing delegation.

Another issue with the previous leasing delegation was that GSA could be held liable as a third-party guarantor for leases that fell apart, even if GSA had nothing to do with signing the contract. That discrepancy, Winstead said, now has been rectified.

Industry experts familiar with the inner workings of PBS said the rule change strikes a common-sense balance, allowing GSA to use its tools and experience, while avoiding unnecessary micromanagement.

Bill Sullivan, who served as commissioner of PBS during the second term of the Reagan administration, said GSA should be the prime source for government leases, in part because it prevents agencies from competing with one another when shopping for office space.

But, in cases when agencies have the institutional knowledge and staffing to properly execute smaller leases, it sometimes makes sense for PBS to cede its lead role, he said.

"GSA should know what agencies are capable of," said Sullivan, who now runs Government Procurement and Marketing, a Washington based firm. "So, making this a one size fits all approach doesn't work as well."